29 August 2022
Metaverse August 2022/3 – 1 of 3 Insights
You would have seen our introductory article on the lawsuit filed by Yuga Labs Inc. (Yuga), a blockchain technology company, against Ryder Ripps (Ripps), a self-proclaimed “conceptual artist”, concerning Yuga's Bored Ape Yacht Club (BAYC) NFT collection (if not, you can read it here).
Yuga based its claim on false designation of origin, false advertising, cybersquatting, trade mark infringement, unfair competition, unjust enrichment, conversion, and tortious interference. Although the lawsuit was filed before the Central District of California and will be decided under the US law, it raises a lot of interesting questions under the UK and EU trade mark law, which this article will look into further below.
In its lawsuit, Yuga is claiming that Ripps promotes and sells its copycat NFTs using the very same trade marks that Yuga uses to promote and to sell its authentic BAYC NFTs. Yuga claims that the activities of Ripps caused confusion and a decline in value of the authentic BAYC NFTs together with an incalculable loss of goodwill.
Pre-emptively, Yuga also argues that any defence raised by Ripps that his actions are satire are baseless because "copying is not satire, it is theft".
Yuga does not own any registered US trade marks but has a number of pending applications at the USPTO for the following marks (the BAYC Marks), which, Yuga claims, have been in use since at least April 2021:
Although some of the applications were filed as far back as 27 May 2021 (with the latest one filed on 15 March 2022), they have not yet been accepted by the USPTO with the earliest filings receiving office actions in March 2022. This leaves Yuga with no registered trade mark rights and explains why it had to rely on its common law (unregistered) trade mark rights.
Yuga is also claiming huge popularity of the BAYC NFT collection and refers to its use of the BAYC Marks in connection with advertising, marketing, and promoting its products and services nationwide and internationally through multiple platforms, including its own website, NFT markets and social media. Yuga claims that as a result of these activities, it has acquired and enjoys significant goodwill for the BAYC Marks.
Yuga claims that Ripps' activities constitute "elementary level trade mark infringement" because Ripps is (i) selling the same or related products, (ii) in the same place, (ii) under exactly the same marks. The infringing acts include for example the use of the BAYC Marks:
In most cases, the marks used by Ripps are identical copies of the BAYC Marks and are accompanied by an identical look and feel to that used by Yuga, which, Yuga argues, is likely to cause confusion and mislead consumers into thinking that the RR/BAYC NFTs are in some way sponsored, affiliated, or connected with Yuga's BAYC.
Yuga further goes on to submit evidence of Ripps' intention to flood the NFT market with his RR/BAYC NFTs to devalue the authentic BAYC NFTs and to cause confusion about which NFT is actually an authentic BAYC NFT. Yuga also submits evidence that Ripps’ activities have been extremely profitable and that in an Instagram post from 30 May 2022 Ripps stated that he has made “over $1m so far” just from this NFT project and has described the resale profits as “pretty crazy already”.
As explained at the beginning, Yuga's lawsuit has been brought up in the US and that is why Yuga is claiming common law trade mark infringement. This concept is not recognised by the UK and/or the EU law and any such claim would either need to rely on passing off or unfair competition. In Germany, companies can also acquire trade mark rights through use provided that the sign in question is already recognised as a trade mark by the relevant public.
Alternatively, once the trade marks proceed to registration, the claim could be amended to rely on the infringement of the registered trade marks. Given that the UKIPO and the EUIPO are both relatively fast in examining trade mark applications (and have in fact already granted registration to some of the BAYC Marks filed in November 2021), Yuga would have been able to rely on its registered marks should the lawsuit be brought in the UK or in the EU.
Under section 10(1) of the UK Trade Marks Act 1994, a person infringes a registered trade mark if he uses in the course of trade a sign which is identical with the trade mark in relation to goods or services which are identical with those for which it is registered. Similar provisions are contained in the EU Trade Mark Regulation. Based on the broad specification of products covered by Yuga's filings and the arguments submitted by Yuga in its lawsuit, Yuga might be able to avoid having to prove confusion and could probably rely on this so-called double identity attack. This would be the case where the BAYC Marks have been depicted in identical form.
Alternatively, to the extent that any of the marks and or goods/services were not found to be identical, Yuga could rely on section 10(2) UK Trade Marks Act 1994 but it would need to show that there exists a likelihood of confusion on the part of the public with the BAYC Marks or on section 10(3), which would require proving that the BAYC Marks have reputation and that the use by Ripps is without due cause, takes unfair advantage of, or is detrimental to, the distinctive character or the repute of the BAYC Marks. Based on the evidence submitted by Yuga so far and leaving possible defences aside for now, it appears that it would likely have a strong claim under section 10(2) and would probably not need to rely on section 10(3).
In either of the above scenarios, Yuga would need to show that Ripps has been using the signs as trade marks. This typically requires the signs to be used in line with their primary function of indicating commercial origin. Whether or not the depiction of a sign amounts to trade mark use is to be assessed from the perspective of the average consumer and takes the common branding practices of the sector in question into account. For the most part, this should be easy to prove in the case at hand. While the case law on the trade mark practices in the NFT sector is scarce, it can be assumed that, depending on the circumstances of the case, the name of an NFT collection or the title of the sales page on OpenSea will typically be considered trade mark use.
Much more interesting would be the question of whether the use of the Yuga Marks within the images underlying the NFTs will also be considered trade mark use and, if so, in respect of which product. This will depend on whether consumers are likely to perceive, say, the depiction of an ape skull on a t-shirt worn by a monkey shown in a jpeg merely as an embellishment or as an actual indicator of commercial origin. It seems the factual answer to this question is not entirely straightforward. The depiction of the logo could be perceived by consumers as being merely "referential". This is a phenomenon that can occur particularly in the fashion industry (where a device printed on a t-shirt is not necessarily perceived as a source indicator). But can that line of reasoning be transferred to the digital space? It would leave trade mark owners vulnerable if this type of "reference" were not to be considered trade mark use.
In this context, it would also have to be considered that the requirements of "trade mark use" vary depending on whether the claimant is relying on double-identity, likelihood of confusion or the taking of unfair advantage. In respect of the latter type of infringement, the CJEU has accepted the use of a sign as trade mark even where it has not been used as a source indicator so long as the use can harm any of the other accepted trade mark functions (e.g. the investment function). Arguably, the depiction of the trade marks within the jpegs could fall in this category even if they were not perceived as trade marks.
Section 11 UK Trade Marks Act 1994 provides some defences to trade mark infringement, however, the marks need to be used in accordance with honest practices for any of these to apply. When determining whether the use is in accordance with honest practices, the following factors need to be considered, as identified by the CJEU:
It will remain to be seen what arguments Ripps may raise but based on what has been submitted so far, it would appear difficult for Ripps to argue that his use is in accordance with honest practices.
In August 2022, Ripps filed a response and, above all, relied on artistic free speech and fair use. He argues that Yuga's purpose behind the action was "to bully [him] into silence". In his view, the RR/BAYC project was "a critique of Yuga’s use of racist and neo-Nazi dog whistles".
While parody can be a fair use exception to copyright infringement in the United Kingdom and the European Union, there is currently no similar defence for trade mark infringement codified in UK or EU law. Therefore, the arguments raised by Ripps would not provide him with a defence in the UK. In Germany, however, there have been occasional cases where the freedom of the arts has been discussed as a type of justification. However, use of a trade mark by a third party for the purpose of artistic expression will be considered as being fair only if it is at the same time in accordance with honest practices within the assessment of the balancing of rights.
Further, even if a parody exemption applied to trade marks, as noted by the CJEU in “Deckmyn” (C-201/13), an absence of confusion is an essential characteristic of a successful parody – a parody should evoke, but not be confused with, the original work. If the case went to court in Germany or the UK, we can only imagine that this aspect would be fiercely discussed between the parties. Whether the use did create a likelihood of confusion with the BAYC Marks and, if so, whether such confusion could have been avoided might also be a factor to be considered in the balancing of rights. Tolerating such confusion would hinder the ability of the BAYC Marks to perform their essential function of designating the goods or services of Yuga from those of others – in addition to causing harm to their repute.
Assuming Yuga did not own any registered trade marks in the UK and/or the EU, it could rely either on passing off or unfair competition in those jurisdictions.
With regard to passing off, Yuga would need to prove that (i) it has goodwill in its BAYC Marks, which it likely has, (ii) Ripps misrepresented to the public that his RR/BAYC NFTs are Yuga's NFTs, and (iii) Yuga suffered damage as a result of Ripps' misrepresentation. Given that the misrepresentation may take the form of an express statement to this effect, or may be implied from the use of the same or similar distinguishing marks in respect of the subject goods or services, it is likely that this limb of passing off would also be established. This, combined with the evidence of the loss of the value of the original BAYC NFTs, would likely mean that the court would find in favour of Yuga on that basis.
Although the requirements under German unfair competition law are different, the result would likely be the same if it can be established that Ripps' offer is misleading or takes unfair advantage of Yuga's repute. But again, the case would in the end likely turn on the question of whether Ripps' artistic freedom can tip the balance in his favour. This would involve the points addressed already above. If this form of art were to be accepted by the courts, it could potentially set a dangerous precedent for others to copy work and claim parody. Moreover, it could have far-reaching consequences for the NFT space.
It will be interesting to see how this case progresses. In some ways, this case is very similar to the famous MetaBirkin case (more on this here), which was also brought in the US and where the court said that Hermès had presented enough evidence to claim, plausibly, that Rothschild’s use of the name “MetaBirkin” was not artistically relevant to the works and that it was explicitly misleading as to source, sponsorship or affiliation. In the end, the case is unlikely to reach the trial stage – above all due to the costs associated with US litigation. Nonetheless, it will certainly be interesting to see how both parties position themselves in what is to come.
At the same time, readers may wonder why Yuga has not relied on copyright in their lawsuit and how such claims could have impacted the case. This will be covered in one of our following editions. Watch this space.
29 August 2022
by Magdalena Borucka, Dr. Christian Tenkhoff, LL.M. (UCL), M.Sc. (LSE)
Nick Storrs and Nicole Ng Yuen unpack the challenges lawyers and regulators face as space technology continues to develop.
12 May 2022
29 August 2022
by Multiple authors
by Dr. Christian Tenkhoff, LL.M. (UCL), M.Sc. (LSE) and Inès Tribouillet
Issue #13 | We keep you up to date with everything you need to know about the Metaverse.
by multiple authors
by multiple authors